RebelCapitalist: Financial Information for the Rest of Us | Finally, Someone Mentions Mortgage Debt Forgiveness

Finally, Someone Mentions Mortgage Debt Forgiveness

Dec 08, 2009 | By: Mr_Blue | Tags: negative equity, mortgages, debt forgiveness, mortgage loan modifications

Yes, finally, in congressional testimony, Laurie Goodman, senior managing director for Amherst Securities goes there. It’s about time. The problem from the beginning of the mortgage crisis has been negative equity and it has only gotten worse with the continued decline in real estate prices.

It is all about negative equity.

Goodman said that current loan modification programs are doomed to fail because they fail to address the major factor driving foreclosures - NEGATIVE EQUITY. She urged lawmakers to force lenders to reduce outstanding principal for borrowers who owe more than their homes are worth.

Without a change, 7 million of the 7.9 million people behind on their mortgages in the third quarter will eventually lose their homes, she said.

Wow - 7 million - 7.9 million people could lose their homes.

There were others who testified and said similar things such as Julia Gordon, senior policy counsel at the Center for Responsible Lending:

The phenomenon of underwater mortgages is one of the most troubling aspects of the entire housing market collapse, Homeowner equity position has emerged as a key predictor of loan modification re-default, more so than unemployment or other facts.

Now, that people have gone on the record and testified that negative equity is the problem and mortgage debt forgiveness is needed, how will Congress respond? I am not going to hold my breath.

Lenders controlled the purse strings and could have said NO to many of the loans that started this crisis. But they didn’t. So why not require them to take a haircut by forcing them to reduce principal balances on mortgage loans.